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U.S. stock market aims for turnaround Tuesday after Evergrande sparks worst day since May

U.S. stock index futures pointed to a modest recovery for the main benchmarks on Tuesday after the worst single day for the S&P 500 in more than four months.

On Monday, the Dow
DJIA,
-1.78%

fell 614 points, or 1.8%, to 33970, the S&P 500
SPX,
-1.70%

declined 75 points, or 1.7%, to 4358, and the Nasdaq Composite
COMP,
-2.19%

dropped 330 points, or 2.2%, to 14714.

What’s driving markets

Is this turnaround Tuesday on Wall Street?

The unfolding saga of China Evergrande
3333,
-0.44%
,
a property developer that is expected to default in coming weeks, set the tone on Monday for the worst downturn for much of the market since May. It came on a day when many key Asian markets were closed for a holiday, and China markets remain closed for a holiday.

“The market sell-off that escalated overnight we believe is primarily driven by technical selling flows (CTAs and option hedgers) in an environment of poor liquidity, and overreaction of discretionary traders to perceived risks,” said Marko Kolanovic, chief global markets strategist at JPMorgan Chase.

Kolanovic anticipates a recovery as the delta wave of coronavirus fades, and expects companies to beat expectations on third-quarter earnings.

Wall Street analysts were at pains to say that Evergrande isn’t China’s Lehman moment.

“A true ‘Lehman moment’ is a crisis of a very different magnitude,” said analysts at Barclays led by Ajay Rajadhyaksha. “One would need to see a lenders’ strike across large parts of the financial system, a sharp increase in credit distress away from the real-estate sector, and banks being unwilling to face each other in the interbank funding market. And with all that, we would also need to see massive policy mistakes on the part of Chinese authorities,”

Read: Will Evergrande be China’s ‘Lehman moment’? Wall Street says no

The worries over Evergrande came at a critical juncture, with several firms having warned, correctly, that September would be bumpy for U.S. equities after a smooth summer.

The Federal Reserve on Tuesday starts the first of a two-day meeting that could lead to a more hawkish interest-rate forecast, with Congress so far unwilling to increase the federal debt ceiling as it struggles to agree on a package of infrastructure spending.

Even after Monday’s fireworks and losses in nine of the last 11 sessions, the S&P 500 is only 4% below its record high.

In public health news, Johnson & Johnson
JNJ,
-0.57%

 said data from a Phase 3 trial and real-world evidence confirm that its single-shot COVID-19 vaccine offers strong and long-lasting protection against hospitalization and death. The company said further data shows that a booster shot offers increased protection and antibodies. 

U.S. home builders started construction on homes at a seasonally-adjusted annual rate of 1.62 million in August, a 3.9% increase from the previous month, the U.S. Census Bureau reported Tuesday. Compared with August 2020, housing starts were up 17.4%. The pace of permitting for new housing units also increased in August, up 6% from July and 13.5% from a year ago.

Which companies are in focus?
  • Shares of Uber Technologies IncUBER rallied 4.3% in premarket trading Tuesday, after the updated its third-quarter outlook after the ride-share and delivery company saw its first months of profitability in adjusted Ebitda (earnings before interest, taxes, depreciation and amortization) in July and August.

  • Shares of Bill.com Holdings IncBILL dropped 5.6% in premarket trading Tuesday, after the provider of software aimed at simplifying back-office operations announced the offering of $1 billion of common stock to the public and $500 million in convertible debt to qualified institutional investors.

  • Transfix Inc., a digital freight platform, said Tuesday it is going public by merging with special-purpose acquisition corporation G Squared Ascend GSQD, +1.55% in a deal with a pro forma enterprise value of $1.1 billion.

  • Shares of Activision Blizzard Inc. ATVI said Tuesday that it was continuing to work with regulators to address and resolve workplace complaints as it cooperates with a Securities and Exchange Commission investigation into disclosures on employment matters.

How are other assets trading?
  • The yield on the 10-year Treasury note TMUBMUSD10Y rose 0.8 basis point to around 1.318% after the benchmark yield saw its biggest rise since Aug. 13, according to Dow Jones Market Data. Yields and debt prices move in opposite directions.

  • The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six rivals, fell by 0.2%.

  • Oil future traded higher Tuesday, with the U.S. benchmark CL00 trading 0.9% higher at $70.78 a barrel. Gold futures GC00 climbed 0.3% to trade at $1,768.70 an ounce.

  • In Asia, Hong Kong’s Hang Seng
    HSI,
    +0.51%

    managed a slight advance after Monday’s 3.3% rout, while the Nikkei 225
    NIK,
    -2.17%

    slumped in Tokyo after a holiday. Chinese markets remain closed until Wednesday.

  • Markets in Europe also saw gains, with the Stoxx Europe 600
    SXXP,
    +0.98%

    up 1% in morning trade and London’s FTSE 100
    UKX,
    +1.11%

    trading 1.2% higher.

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